The Keys to the Kingdom (39 page)

Still, the string of flops was absolutely abysmal:
Medicine Man, Blame It on the Bellboy, Noises Off, Newsies, Passed Away,
and
The Gun in Betty Lou's Handbag
. Hollywood Pictures may have hit a low point with
A
Stranger Among Us,
which cast Melanie Griffith in the unlikely role of an undercover detective in a Hasidic Jewish neighborhood. The industry nicknamed the project
Goyz N the Hood,
a takeoff of John Singleton's 1991 sleeper hit for Columbia Pictures.

Still, Eisner had been correct in predicting improved results for fisca l1992. Thanks in part to the home-video release of the animated classics
101 Dalmatians
and
Fantasia,
the filmed entertainment division's revenues were up 20 percent to $3.1 billion and operating income increased a whopping 60 percent to $508.3 million. It was the most profitable year for any studio in the history of Hollywood. Overall, the company rallied with a record $7.5 billion in revenues, a 23 percent increase over 1991. Operating income increased 31 percent to $1.4 billion.

There was another factor in the film division's stellar performance.
Beauty and the Beast
had opened in November 1991, which meant that its gush of revenues began after the start of fiscal 1992. In his annual letter to stockholders that year, Eisner again acknowledged the importance of animation in general and
Beauty
in particular to the company. “I have yet to find the adjective to suitably describe the success of this film,” he said. He lavished praise on the artists. “Your company,” he told shareholders, “has nothing less than the most talented, inventive, creative, original, resourceful and brilliant people working in animation.”

And there was another animation blockbuster in the theaters, though it had opened in November 1992 and wouldn't show up on the books until fiscal 1993.
Aladdin
was the last film to feature lyrics from Howard Ashman, whose partially completed work was finished by Tim Rice. It not only claimed the two music Oscars but five Grammys (its big hit, “A Whole New World,” was named Song of the Year). And
Aladdin
was the first animated feature to be number one at the box office since
The Jungle Book
had scored that coup in 1967.

Eisner also noted that June 1993 would mark the hundredth anniversary of Roy O. Disney's birth. And while he mentioned in one long paragraph that the elder Roy “virtually gave his life” to the company, he also took the opportunity to praise the contemporary Roy in the ensuing eight paragraphs.

“With all that Roy Sr. gave to this company, perhaps his number one legacy to our company is his son, our Roy, who did nothing less than save the company in 1984—with the help of Stanley Gold, Roy's partner and friend, from the outside, and Ray Watson, the chairman of the company,
from the inside,” Eisner wrote. Roy not only kept the company together, Eisner continued, but he knew that Disney had to recommit itself to animation. At the time, Eisner remembered, “the common wisdom was that drawing a movie frame by laborious frame was archaic and too expensive. But Roy bought none of that.”

When Katzenberg was hired, Eisner said, “one of his major responsibilities was to work with Roy to restore Disney's lost luster in animation.” He offered this history to show “how insightful and downright gutsy Roy was to insist way back in 1984 that we pour major resources into what most people thought was a moribund, money-losing enterprise that would only be relegated to kids' matinees.” As the company broke box-office records and collected Oscars, Eisner said, “we should always remember that we have Roy to thank.” In his entire paean, Eisner barely mentioned Katzenberg.

 

EISNER HAD SOME
other, personal business to take care of in his letter. His compensation had rallied—rather dramatically—in 1992. In December, he and Wells had exercised options on about 6.6 million Disney shares, selling nearly 5.1 million of them. That fiscal year, in a feat that the
Wall Street Journal
described as “one of the single most lucrative transactions in the annals of executive compensation,” Eisner took home a breathtaking $197 million. (Wells netted $60.3 million before taxes.) With his salary and bonus, Eisner was taking home more than $200 million. Eisner's remuneration set a record for a chief executive of a public company. (Obviously, he was the highest-paid executive for that year. The first runner-up, Sanford Weill of Travelers Corp., earned $52.8 million.) As
Newsweek
's Allan Sloan marveled, by pulling off “the most lucrative stock option since money was invented,” Eisner at age fifty had actually propelled himself onto the
Forbes
400 list of richest Americans. That was no mean feat considering how few executives managed to make their way onto that list simply by being employees rather than major shareholders, founders, or inheritors.

Eisner said he understood that the sale of what amounted to about 1 percent of the stock by its two top officers was a sensitive issue. (Disney stock actually dropped $1.875 a share the day of the sale but recovered later in the week.) But the options had to be exercised because of legislation—supported by newly elected President Bill Clinton—that would eliminate
breaks for companies that lavished compensation in excess of $1 million to top executives. By selling now, he was actually saving the company money. Besides, he still held three million shares of the company's stock. He was not bailing out of Disney.

If Katzenberg was indeed jealous over Eisner's compensation, the news of Eisner's big payout must have been especially hard to take. His division had set a record for profit, and Eisner—who had steered the company into burgeoning losses at Euro Disney—nonetheless set a record for making the most money ever.

Eisner's rich compensation set off a round of public debate.
The New Republic
derided Eisner as a hypocrite for supporting Bill Clinton but dodging his anticipated tax reform. In the
Los Angeles Times,
columnist Peter H. King wrote, “I read somewhere that Walt Disney had a maxim: ‘Pig, don't make a hog of yourself.' It no longer seems to apply.” But James Flanagan, another
Times
columnist, took Eisner's side. He quoted a pension fund manager who said, “[Eisner] deserves every penny. He's the best thing that happened to the company since Mickey Mouse.”

Allan Sloan, who acknowledged that he had complained in the past that Disney had used “its squeaky-clean image to stick investors with overpriced, trashy securities” (including a very successful sale of stock in Euro Disney), also came to Eisner's defense. Before Eisner and Wells, he pointed out, Disney's stock-market value was about $2 billion. Now it was $22 billion. “Who can begrudge Eisner a tad more than 1 percent of that increase?” Sloan asked. “Even I can't.”

 

A SIDE FROM ITS
brilliant music, the key to
Aladdin
's success was a star turn by Robin Williams as the Genie, whose rapid patter included jokes that appealed as much to adults as to children. In the course of the film, Williams whacked out about sixty impressions of everyone from Ed Sullivan to Arnold Schwarzenegger. Initially, Williams was reluctant to take the role, but after seeing a mock-up of the Genie, he agreed to work for the Screen Actors Guild minimum of $485 a day. He saw it as a chance to make a film that would delight his own children. But if he was going to work for so little money, Williams laid down some conditions. He insisted that Disney not use his voice or the Genie image (which he considered to be a caricature of himself) in any tie-in promotions (like Burger King's offering of
Aladdin
figurines). In trailers and television commercials, the Genie
could appear but only in proportion to his role in the film (he was on-screen about 25 percent of the time).

Disney met his terms through the opening of the film. But when Disney created some new advertising for it, including a poster that showed the Genie's face, Williams felt that he had been exploited without his permission. At Williams's insistence, the poster was removed from bus shelters all over the country. He was also upset when the Disney Channel showed footage of him and his family attending the January 1993 opening of the Toontown attraction at Disneyland. The final straw came when Disney decided to give the film another burst by creating a coupon booklet that theater patrons could use for discounts on
Aladdin
merchandise. The studio didn't use the Genie's image in a television commercial advertising the promotion, but it showed the character of the merchant (an alter ego of the Genie) and used another actor to provide his voice. The studio argued that the voice was not a sound-alike, but Williams vehemently disagreed. He felt that Disney had violated the spirit, if not the letter, of its deal.

There was plenty of very heated conversation with Williams's agent, Michael Ovitz. Katzenberg also got into a loud dispute with Williams, or more precisely his wife. The fight could have been settled had Williams been paid—and his agents at CAA figured that his participation in the film, had it been a normal deal, could have been as great as $25 million. Katzenberg tried to appease the star by giving him a Picasso painting that he claimed was worth $8 million. (Ironically, Katzenberg enlisted producer Mark Johnson—who had felt so shortchanged by Disney when he made
Good Morning, Vietnam
—to plant the gift in Williams's hotel room in New York.)

Williams's agents (who probably got the real scoop from Ovitz's dealer, Arne Glimcher) believed that Disney had gotten the painting for less than $1 million. Besides, Williams thought it was ugly. “I've known Robin for ten years and I've never heard him so angry,” says one business associate. “He was livid, just livid. He was so angry that they fucked him like that.” Williams's wife—known as Lady Macbeth within the confines of his manager's office—was furious, too; she apparently thought the studio should have given the star a Learjet. In the end, Williams—who had starred in
Good Morning, Vietnam, Dead Poets Society,
and
Aladdin
for the studio—no longer had a working relationship with Disney.

 

EVEN AS EISNER
had reported to shareholders that the company's results from fiscal 1992 were “great,” he knew that trouble loomed ahead. Euro Disney, he asserted, was “one of the greatest man-made attractions in the world”—“somewhat expensive but still fantastic.” Calling Euro Disney “somewhat expensive” was quite an understatement. And Eisner acknowledged in December 1992 that as winter approached, “[we] frankly do not know what will happen.”

Eisner must have known that the difficulties ahead went far beyond mere dips in the mercury. In fact, Euro Disney was a burgeoning disaster that would make the other so-called disasters in the domestic theme parks pale in comparison. It would fall to Frank Wells, who had helped preside over the company's slide into this morass, to find a way out.

Of all the challenges that Wells had faced in his working life, none compared with trying to salvage Euro Disney. “To him, it was Waterloo,” Katzenberg says. “He said it was the most horrible thing that happened professionally to him in his career.”

In building Euro Disney, Eisner was determined not to repeat the mistakes of Tokyo Disney, which was built and owned by an outside company. Nor was Disney going to cede hotel development to others, as had been done in Orlando (where Disney owned only 14 percent of the area hotels). The Euro Disney plan called for six hotels with 5,200 rooms, a campground, and a golf course.

But that wasn't all. Eventually, there was to be a second gate—another studio-themed attraction like the Disney-MGM tour in Florida—and perhaps three times as many hotel rooms (notwithstanding the fact that the initial plan created more rooms than could be found in the entire city of Cannes) as well as offices and 570 new homes. Disney would design and construct all these elements and then sell them.

What went wrong with this most ambitious part of Disney's dramatic expansion? Executives who worked on the project disagree about where to lay the blame. Was it a simple matter of a recession and bad timing? Was Euro Disney overly ambitious and too expensive? Did Disney try to cut itself too sweet a deal, draining too much profit from the park? Did the plan rely too heavily on debt to finance the project? The answer is all of the above, as well as what
Newsweek
called Disney's “blinding arrogance.” In Europe, the
Wall Street Journal
suggested, Disney reaped the consequences of its “brash, frequently insensitive and often overbearing style.” Certainly Eisner walked stubbornly into a multibillion-dollar mess.

 

THE EUROPEAN DISNEY
had been kicked off in March 1987 when Eisner signed an agreement with French premier Jacques Chirac. After a tough negotiation, the French government offered a generous incentive package to lure the project, including $750 million worth of loans, cheap real estate, and a promise to improve rail transit and highways leading to the site. Still, this was Disney's biggest gamble ever.

Chief financial officer Gary Wilson created a series of partnerships designed to insulate the Walt Disney Company from potential problems while also squeezing as much profit as possible out of the new theme park. Euro Disney was structured as a separate company, 49 percent of which would be owned by Disney. Disney also put up only $150 million in exchange for equity that soared to a value of $2.3 billion when stock rose before the park opened. Disney expected to make money from rich management fees and royalties, as well as a share in profits.

Aside from Disney's relatively tiny investment in the project, former Imagineer Dave Fink says that structurally the deal was inherently unfair to outside investors because Disney had total control over the design of the park and the shareholders paid the costs. And Imagineering was charging Euro Disney top dollar for its services. “If a single designer said he wanted to spend more time, they did it and billed the client,” Fink says. “No one at the Walt Disney Company ever thought, ‘Is this fair to the client?' because it's not about the client….[It was], ‘We will tell you when the design is done. We're going to spend your money on it until it's ready.' It's a very difficult situation. The justification for it is, that's how they would have done it for themselves.”